Small Business Lending Blog

By Tom Gazaway

Here’s a good story about how some borrowing needs require the right person, and not just the right bank:

I got a call recently from a business owner who started his company about four years ago.  The first year, they did a little over $300,000 in revenue.  In year two, they jumped up just over $1 million, and last year they did approximately $1.6 million. They should have a big year in 2011.

They have carved out a nice niche, and there’s room for much more growth — if they can get access to credit. They don’t have collateral to offer a lender, but they approached their bank and asked for $200,000 in a business line of credit.

The problem: Many banks are simply not approving large, unsecured lines of credit like this nowadays for small business owners.

This isn’t a deal that is likely going to be done, even by a lender who offers unsecured business lines of credit (UBLs).  The second problem is that if the bank will lend without collateral, they will likely only lend up to 10 percent of the business’s annual revenue.

This business owner’s best-case scenario was probably to get around $120,000, since his 2010 financials aren’t filed yet.  Also, many lenders cap their unsecured credit lines at a certain point, so even if 10 percent of annual revenue supported a higher approval, they only allow up to $50,000 or $100,000 for a UBL without collateral.

This brings me to my third point: He went to the wrong bank. He didn’t know that, but he chose a bank that just wasn’t a good fit for him, mainly because they are not a good unsecured lender. This bank is barely even lending nowadays, period.

Why do I share all of this?  After his efforts came up empty, he called us and asked if we could get him a UBL for $200,000.

I spoke with him this morning and by the end of the day, I had him pre-qualified for $225,000 from three banks I’ve worked with for some time.  Over 80 percent of the applications we’ve submitted to these three lenders over the last two years have been approved, so when we “pre-qual” a deal with them it’s usually going to close.

There are benefits to knowing the right people at the right bank. But this doesn’t mean we get special favors, and it doesn’t mean that any of these lenders bend their underwriting criteria for Hawkeye Management.

Here’s what it does mean:

• You need to know the right bank.
• You need to know a highly competent person at that bank, who has closed many loans for your business type. All three of my contacts at these banks are vice-president level or higher and have been with their banks for over five years.
• You need to know exactly how to fill out their applications. This is more important than you might think.  You need to know what the credit report needs to look like before you submit the deal, so that you know it’s a match and there’s no red flags.
• You need to know any potential problems before the deal is submitted…you don’t try to hide issues and hope they don’t find them.  Tell them what those issues are up front, so your highly experienced banker believes in the deal and can sell it to their underwriter.

With this particular deal, we took the business owner to different lenders than he tried. But there have been many times where we take a client’s deal right back to the same bank, and run the same deal through our people — who know how to package it and communicate with the underwriters — and we get it approved.

If you are a small business owner and your business could benefit from access to $50,000 or more in an unsecured business line of credit, give us a call.  We have the highest rating offerred by the Better Business Bureau and Dun & Bradstreet, and we charge no up-front fees.  At Hawkeye Management, we’re happy to assist you as you start, build, grow, or maintain your business.

Photo via stock.xchng user mikecco